Cable’s Next Big Threat: Loss of Ad Dollars To YouTube, AOL

It turns out that cord-cutting isn’t the only threat facing cable channels.

Several of the big ad-supported online video outlets, including Google’s YouTube, AOL and others, plan this upfront season to target some of the ad dollars that currently flow to cable channels, industry executives say.

The web video outlets see a vulnerability in second tier cable networks, and to a lesser extend in the local TV-station market, executives say.

According to multiple media buyers and ad sellers in the Web video industry, digital media companies are looking to draw direct comparisons between their audiences and cable TV networks, a match-up Web video outlets think they can win.

Buyers say Google is likely to be the most aggressive on this front, given YouTube’s massive size and its young demographics that don’t necessarily watch a lot of TV. The company has been selling directly against cable networks, with pitches like “X YouTube net reaches more women than E! or Awesomeness TV reaches more tweens than ABC Family.”

In one pitch, for instance, YouTube cited Nielsen data from November showing that it reached 49% of all 18 to 34 year olds, versus 45% for FX, 44% for TBS’ comedies, 41% for Comedy Central and 40% for AMC.

YouTube also thinks it can capture more local broadcast and cable ad dollars from national advertisers looking to boost spending in certain markets. The company is targeting automotive and wireless advertisers in particularly, said executives with direct knowledge of YouTube’s plans.

TV executives are putting up a brave front, pointing to TV’s reputation for quality and its massive reach. “We’ve had 10 pre-upfront meetings and YouTube hasn’t come up once,” said one.

“I think they’re competitive,” said another cable executive. “But Web video is probably more complementary at this point.”

What’s making online video’s strategy possible this year is the fact that all the big digital outlets, including after a long holdout YouTube, are now able to sell ad inventory using TV-like Nielsen data. That allows them to speak the language of advertisers and marketers, which have long histories of using and trusting television for their ads.

Colleen Whitney, Digitas’ media director for North American video, said her team has already begun previewing presentations planned by most big digital companies for this year’s online ad version of the upfronts, the NewFront, planned at the end of April.

“You are absolutely seeing them sell aggressively against cable more than ever before,” Ms. Whitney said, adding that the YouTubes of the world are creating packages of shows centered around verticals like comedy “and then making the argument that they reach more of a certain demographic than Comedy Central.

Buying ad time on cable channels is cheaper than online video outlets, media buyers note. In 2013, the average cost of reaching a thousand viewers on cable channels is $15.63, while the equivalent price for online video was $23.03, according to advertising cost analysis firm SQAD. Amanda Richman, president of investment and activation at Publicis Groupe’s Starcom, said cable’s lower prices helps them.

Still, she said, “there’s been a steady drumbeat toward Web video, which offers more fluidity.”

Ms. Richman noted that major broadcast TV networks have moved aggressively in putting their content on the Web, both on their own sites and platforms like Hulu, allowing them to capture some of the Web video ad dollars. But, she noted, cable has been more cautious online, because it must protect its relationships with pay TV distributors.

The cable versus Web video conversations actually started quietly last year. Some online video outlets said they received requests from agencies to put together potential ad packages at much larger spending levels than they were used to seeing—with the implication that the outlets were being given a shot to steal dollars that otherwise would go to cable networks. The Web video companies didn’t land many of these deals, but it meant that agencies were ready to pit the Web versus cable in negotiations. Industry insiders expect more such negotiations this year.

Another issue, insiders say, is the way that ad agencies are structured. TV buyers are naturally inclined to favor TV. And even when considering web outlets, many prefer those showing traditional TV content. And by the time some TV buyers receive orders from their planning departments, they don’t always have the flexibility to move dollars from TV to the Web, since they’re required to get a certain price or audience level, as measured by gross ratings points.

However, one issue is whether online outlets have enough quality content to satisfy advertisers. TV networks often have an inherent advantage with some of their high profile programs.

“There’s a lot of tonnage in web video, and not much borrowed equity,” Ms. Redniss said.

Web video outlets, while optimistic, are trying to remain realistic, given the fact that cable networks own so many buzzy hits, and will be formidable.

“Where the numbers match up well, you’ll absolutely see the Web against cable,” said Jason Krebs, head of sales at Maker Studios, which represents thousands of YouTube creators. “But it’s a case by case thing. To say video is just video no matter what screen you’re on is just an easy thing to say. I don’t yet see a dramatic change.”